The $787 billion ARRA was about 2/3 spending increases and 1/3 tax cuts. Jared Bernstein and Christie Romer estimated that with a spending multiplier of 1.57 and a tax multiplier of 0.99 that the ARRA would boost production over its lifetime by $787 x 2/3 x 1.57 + $787 x 1/3 x 0.99 = $1,083 billion.

Now comes Greg Mankiw to say that they overestimated the impact of the ARRA because their multipliers were wrong: that he prefers a tax multiplier of 3 (from Romer and Romer) and a spending multiplier of 1.4 (from Valerie Ramey) and that as a result the right estimate was that the ARRA would boost production over its lifetime by $787 x 2/3 x 1.4 + $787 x 1/3 x 3 = $1,521 billion.

But, Greg, $1,521 > $1,083...

Mankiw:

Crisis Economics: In an economic assessment... released in January 2009, President Obama's advisors concluded that, if they did nothing, the unemployment rate would reach 9%.... So they developed their medicine: an ambitious plan to stimulate the economy.... Today, however, the unemployment rate is nearly 10%. Clearly, things have not gone as the president's advisors expected.... To the question of why their patient — the U.S. economy — did not respond as expected, the Obama team's answer is that the patient was sicker at the beginning of 2009 than they had originally thought, not that they administered the wrong medicine.... There is no way to decisively prove or disprove the Obama administration's argument. All we can do is consider its premises....

Extreme and sustained unemployment during a recession, Keynesians argue, results from a decline in overall (or aggregate) demand in the economy. When the economy is knocked off balance by serious economic shocks, the government can help restore normalcy by increasing demand through government spending. And because the influx of government spending drives businesses to hire and consumers to spend, its impact is multiplied.... To Obama-administration economists, as well as to many others, the recession that followed the financial crisis of 2008 seemed like a classic case of decline in aggregate demand. Because of the credit crisis, people were not able to obtain loans — for homes, cars, business equipment, or any of the countless other transactions that rely on credit in today's economy. And because people were unable to obtain loans, these sales and purchases couldn't take place, resulting in a significant drop in demand across the economy....

[T]he [Bernstein-Romer] multiplier for direct spending — would be 1.57, while the tax-cut multiplier would be 0.99. In other words, every dollar spent by the government would yield $1.57 in aggregate demand, while every dollar in reduced taxes would yield only 99 cents in increased demand. And because 1.57 is larger than 0.99, the Obama team concluded it was better to increase spending than to cut taxes. Obama and his advisors arrived at these numbers through a standard macroeconometric mode....

When we talk about the impact of government purchases on aggregate demand, and therefore on job creation, we must take into account an enormous number of "general equilibrium effects" — that is, the indirect effects that occur as one economic variable influences another, which in turn influences yet another, and so on. Such effects can be modeled and analyzed to some extent.... These general equilibrium effects are tremendously important to the economy — sometimes in positive ways, sometimes in negative. The positive effects are those that underlie the conventional Keynesian fiscal-policy multipliers: Higher government spending leads to higher incomes for some people, which causes higher consumption, and therefore higher incomes yet again.... Increased government borrowing may also drive up long-term interest rates, which could make it difficult for people to borrow money and could therefore reduce spending today.... [E]ven if recipients of stimulus funding filled out their government reports reliably and correctly, the data they provided would not accurately describe the effects of the stimulus on job creation. Nor would data about job creation by itself actually resolve the underlying question about the administration's economic-recovery effort: whether it was right to pursue a spending-heavy stimulus plan, instead of one focused more on tax cuts.

Addressing this question requires not only data about the past year or two, but also analysis of some key assumptions at the core of the administration's approach to fiscal policy.... [Obama's] first assumption overlooks an important difference between spending and tax cuts in the context of economic stimulus. When the government is seeking to revive its sick patient — the economy — time is of the essence.... The administration's second assumption, meanwhile, is a matter of academic theories about the sizes of the relevant economic multipliers.... [T]he Obama administration's economic team consulted these standard models in deciding that spending would be significantly more effective than tax cuts. But a great deal of recent economic evidence calls that conclusion into question.... The Romers' conclusion... was that the tax multiplier was 3.... Some excellent work on this topic [of the spending multiplier] has come from Valerie Ramey of the University of California, San Diego. Ramey finds a government-spending multiplier of about 1.4....

[T]he fiscal-policy decisions of the past year and a half have not been implausible or inexplicable — but they have also not been empirically shown to work. The data point to other approaches. It may seem unfair to criticize government economists working under great pressure in the midst of a crisis. After all, they are not in fact doctors treating patients. They work for politicians, who must take into account not just economic theory and data but also voter attitudes and political realities. Economic policy is not just applied economics. But economists are social scientists, not politicians. And whether they work for the government or have the luxury of merely observing the scene from an ivory tower, the integrity of the profession and the importance of the work involved demand that they be subjected to critical judgment; they must be compelled always to submit their assumptions, data, models, and conclusions to careful scrutiny. The foremost job of economists is not to make the lives of politicians easier, but to think through problems, to examine all the available information about the problems' causes and potential treatments, and to propose the solutions most likely to work...

Clive Crook says that Europe is wrong to move to fiscal austerity immediately:

Clive Crook: [U]nforced austerity is bad for Germany (though it might be good politics for Angela Merkel). Britain’s new government has a much more serious public debt problem but its fiscal plans – which gave rise to much boasting in Toronto – also look needlessly severe. Europe as a whole seems intent on one-size-fits-all austerity, despite limping output and very low inflation. Some countries have no choice but to curb their borrowing immediately. All should make a credible commitment to fiscal consolidation in the medium term: deficit hawks are right that if you wait until the bond market hammer comes down, you have waited too long. But with economies still so weak – remember Japan – this should not dictate a universal headlong rush to fiscal retrenchment...

But the headline on Crook's article is:

Obama is wrong to lecture the world [against premature fiscal retrenchment]...

And the headline accurately summarizes the meat of the article:

[O]ne could forgive the US for lecturing others on fiscal policy, were it not for...

But why is Obama wrong to advise countries to do the right thing?

It's not so clear.

Crook appears to me to give five reasons, two of which are wrong about matters of fact, none of which is valid as a reason that Obama should shut up rather than warn Europe not to make big economic policy mistakes:

Clive Crook: [P]oor US financial regulation and inattentive monetary policy caused the crisis in the first place...

And this is supposed to be a reason not to say that premature fiscal contraction is destructive?

Clive Crook: [The U.S.'s] own fiscal policy is a shambles.... Obama is telling other countries to maintain fiscal stimulus even as his own fades and the US Congress is denying his modest requests for extra spending...

And this is a reason for Barack Obama not to tell other countries not to imitate the mistakes of Senators 55-60 in the U.S. Congress?

And then Crook starts saying things that are simply not true--and would not be reasons for Obama to be quiet if they were true:

Clive Crook: [The] U.S. Congress is denying [Obama's] modest requests.... For this, Mr Obama himself is mostly to blame. He and his allies in Congress bungled last year’s stimulus...

Ummm... Ben Nelson and Olympia Snowe and Susan Collins and George Voinovich designed last year's stimulus. Obama's preferred stimulus was bigger--and much more technocratic. But is pushing for a good--although not the best--policy a reason not to warn other countries against making big mistakes?

And next comes:

Clive Crook: [The package] was seriously oversold, leaving voters sceptical that more stimulus would do any good...

This also seems to me to be wrong. But is overselling a program a reason not to warn other countries against making big mistakes?

Fifth and last comes:

Clive Crook: [W]ith public debt through the roof, the administration has failed to give the smallest sign of its exit strategy...

This at least is true. But is the fact that Obama has not outlined how he intends to stabilize the debt-to-GDP ratio a reason not to warn other countries against making big mistakes?

I hope you will forgive me if I tell you something I reel you ought to know.

One of hte men in your entourage (a devoted friend) has been to me and told me that there is a danger of your being generally disliked by your colleagues and subordinates because of your rough sarcastic and overbearing manner -- It seems your Private Secretaries have agreed to behave like school boys and 'take what's coming to them and then escape otu of your presenece shrugging their shoulders -- Higher up, if an idea is suggested (say at a conference) you are supposed to be so contemptuous that presently no ideas, good or bad, will be forthcoming. I was astonished and upset because in a these years I have been accustomed to all those who have worked with and under you, loving you -- I said this, and was told 'No doubt it's the strain' --

My Darling Winston, I must confess that I have noticed a deterioration in your manner; and you are not as kind as you used to be.

It is for you to give the Orders and if they are bungled -- escept for the King, the Archbishop of Canterbury and the Speaker, you can sack anyone and everyone. Therefor with thisterrific power you must cominbe urbanity, kindness, and if possible Olympic calm You used to quote: -- 'On ne regne sur les ames que par le cale --' I cannot bear that those who serve the Country and yoursef should not love you as well as admire and respect you --

Besides you won't get the best results by irascibility and rudeness. They wil breed either dislike or a slave mentality. (Rebellion in War time being out of the question!)

i am going to have to rerun all the underlying analyses next Wednesday, after the CBO issues its new Long-Term Budget Outlook. But if the CBO's numbers then are consistent with their analyse last fall of the PPACA, then...

The U.S. has a current-law projected primary federal fiscal deficit over the next 75 years of 3% of GDP, according to the CBO's current-law baseline.

The U.S. has a projected primary federal fiscal deficit over the next 75 years of 8% of GDP under the CBO's alternative fiscal scenario baseline.

These calculations assume current interest rates--where the long-term Treasury rate at which the U.S government is borrowing is only a little bit more than the nominal GDP growth rate. Higher interest rates would lower the 75-year primary fiscal deficit--they would make what happens in near-future years when the projected baseline deficit is relatively small becomes of more relative weight, and what happens in distant-future years becomes of less relative weight.

The stimulus package--the ARRA--raised our 75-year fiscal gap by 0.03% of GDP--and that is assuming that the ARRA did not do anything to boost the capital stock and productivity of the U.S. economy beyond 2014. Add in hysteresis in labor markets of any form--any permanent transformation of cyclical to structural unemployment and thus permanent upward shift in unemployment's natural rate--and the ARRA flips sign and does not add to but subtracts from the 75-year primary fiscal deficit.

A further $100 billion stimulus would raise our 75-year primary fiscal deficit by 0.005% of GDP.

It would take a $2 trillion stimulus to raise our 75-year primary fiscal deficit by 0.1% of GDP

The health care reform act--the PPACA--reduced our 75-year primary fiscal deficit by 0.4% of GDP if repeat if the long-run effects on Medicare spending growth are what the CBO projected them to be last fall.

In short, if we want to do as much harm to the long-term budget picture as we did good by passing the PPACA, we would have to spend $8 trillion on additional stimulus. The effects of fiscal stimulus spending now on our long-term budget position are lost in the rounding error.

The reason, of course, is that the big drivers of the long-term deficit are the excess above GDP projexted growth rates of Medicare and Medicaid. Put in place institutions that slow the long-term growth of Medicare and Medicaid--as the CBO believes the PPACA does--and you do infinitely more to improve the long-term budget picture than any stimulus program could possibly do to harm it.

America Speaks in LA – They Want Economic Recovery, No Social Security Cuts: The America Speaks meetings held in 19 cities across the country today, funded... by the Peter G. Peterson Foundation, were a study in how subtle messaging and deficit hyping can mold and shape opinions that move the public toward right-wing solutions.... Despite an insistence of neutrality, organizers of this series of town hall meetings allowed their agenda to show through, particularly in their presentation of options for how to deal with the nation’s fiscal future. But attendees in Los Angeles and around the country weren’t totally buying it in the first half of the meeting....

The entire event was absolutely designed to create a panic about the deficit among the participants. Slickly produced scare videos talking about the dire straits of the budget were prevalent. Multiple charts and graphs without precise numbers or percentages were handed out. Speakers discussed how “most Americans are concerned about the deficits and debt,” and how we cannot grow our way out of the problem. The current state of the economy, which needs an increase in aggregate demand, mostly in the form of government spending, to avoid a relapse into recession, got a short mention at the beginning of the discussion....

“Everything must be on the table,” said David Walker, and while everything certainly was at the meeting, it was tilted in a particular direction. The meeting was designed to provide an outline of the fiscal challenges of the nation, and offer solutions for how to meet it. But all the solutions were very prescribed and very narrow. An authoritative “Options Workbook” sets out potential budget solutions, on the spending and revenue side. 28 pages cover spending cuts, 15 pages cover revenue solutions. And the very first pages of the workbook talk about cuts to Medicare, Medicaid and Social Security.

While the workbook has pages and pages describing the health care system, the final menu of solutions simply list amounts of percentage cuts to Medicare and Medicaid, without mentioning how to achieve those cuts.... When the workbook finally gets around to tax increases, the language in the text constantly goes back to how taxing wealthier Americans would “reduce incentives for work and savings.” At one point it says that “Tax increases on upper-income Americans will discourage work and penalize success.”...

UPDATE: The propaganda may have wound up being too subtle. Via the America Speaks twitter feed, the top three options at the meetings selected by the participants were: raising the limit on taxable earnings in Social Security, a 5% tax increase on people making over $1 million dollars a year, a carbon tax, and a tax on financial transactions. Whoops!

TC: "This is an unmitigated loss for the Washington Post, and for the conservative movement. As he said when this brouhaha first began, Weigel’s reporting speaks for itself. I defy anyone to produce reporting and commentary on the right that even approaches his level of fairness and insight. I’m positive Weigel will land on his feet. He’s got talent, a fresh point of view, and he’s a hard worker. The Washington Post should have recognized this, and told him to tear up his resignation. I also took a look at the excerpted emails that caused all the fuss, and I can’t find anything there that diverges significantly from things I have heard said in private by other journalists, and even by figures on the right. The notion that his comments reveal some anti-conservative bias is ridiculous. He makes specific, if unvarnished, criticisms that are backed up by facts, many of which have even been echoed by conservatives."

SB: " the official position of the McCain/Palin Republican presidential ticket, not even two years ago, was to support cap-and-trade. Not just in theory, either. The official campaign website in 2008 told Americans that John McCain and Sarah Palin "will establish ... a cap-and-trade system that would reduce greenhouse gas emissions." McCain/Palin's official position added, "A cap-and-trade system harnesses human ingenuity in the pursuit of alternatives to carbon-based fuels." Even George W. Bush awkwardly endorsed cap-and-trade before leaving office. Democratic policymakers could, today, endorse the policy put forward by the Republican ticket from 2008, and GOP senators would filibuster it. Republicans said they wanted cap-and-trade, but now refuse to take "yes" for an answer. The goal posts are always on the move, which in turn makes substantive policymaking with Republican lawmakers practically impossible."

Because those who write for it who tell me where they are coming from aren't coming from reality, and the rest won't tell me where they are coming from--so I cannot trust them.

Mstthew Yglesias:

What Is Hidden and What Is Revealed: Something that pops up every time old/new media tensions emerge is the view—which I find, frankly, bizarre—common in the newspaper world that pretending to not have opinions makes your work better... the ideal reporter would be someone who actually doesn’t have opinions... “the facts”... could be... observed, processed, and then regurgitated into inverted pyramid form without passing through the muck of “judgment.”...

Then the secondary presumption is that you can somehow make things real by pretending. Like if you want to express judgments about politicians in conversations with your friends, that’s fine, but you have to never publish them.... [If] something “private” goes “public” now your actual professional work is invalidated... keeping the views secret is supposed to be a close substitute for not having them.... [That] leads to the odd conclusion that the best journalist is a consistently dishonest one.

And:

The Innovators Dilemma: I think the odds are quite good that The Washington Post won’t exist in anything remotely resembling its current form in 20 or 30 years.... [T]here are many better-positioned brands and firms... BBC, the New York Times, the Associated Press, and Reuters as is News Corporation’s family of brands. Beyond that, AOL-Time Warner’s family brands has considerable strength, so does the rapidly growing NPR.... That’s seven, which is a lot fewer than the quantity we have now, but by any objective measure it’s a lot. Figure that everyone is going to consume a fair amount of locally oriented media along with specialty media focused on areas of particular interest. How many general-purpose English language news brands is any given person going to want to follow on a typical day. One or maybe two I would think....

[I]t’s going to be tough out there. Really tough. And in some ways it’s especially tough for an organization like The Washington Post... [where] a large number of Post staffers loathe and despise... the paper’s... signature efforts to obtain relevance in a digital age.... [T]he ethos cultivated at smid-sized urban daily is different from the ethos of the new media... that... makes it extremely difficult to compete with smaller, nimbler organizations that can... snagg... talented people...

An Unhappy Day At The Washington Post: The sad truth is that the Washington Post, in its general desperation for page views, now hires people who came up in journalism without much adult supervision, and without the proper amount of toilet-training. This little episode today is proof of this. But it is also proof that some people at the Post (where I worked, briefly, 20 years ago) still know the difference between acceptable behavior and unacceptable behavior, and that maybe this episode will lead to the reimposition of some level of standards.

Here is some of what was told to me from inside The Post: "This is not just sour grapes about the sudden rise of these untrained kids, though I have to think that some people in the building resent them for bypassing the usual way people rise here. This is really about the serial stupidity of allowing these bloggers to trade on the name of the Washington Post." "It makes me crazy when I see these guys referred to as reporters. They're anything but. And they hurt the newspaper when they claim to be reporters." "Ezra Klein is a talented guy, but he's just an absolute partisan. If this is where journalism has to go, so be it, but I don't want to go there." "The lack of toilet-training is right. Everyone makes mistakes, but you can mitigate the number of mistakes through seasoning. Some people here are still put through seasoning, but others aren't. It shows, and it's embarrassing."

Ta-Nehisi Coates:

The Thing About Dave: [M]y label-mate Jeff Goldberg has a few posts up on Dave Weigel. I think, in the main, the posts are unfortunate as they greatly misunderstand Dave's work. I think the following gets to the nub of it. Here is Jeff quoting a journalist at the Post making these two claims:

"It makes me crazy when I see these guys referred to as reporters. They're anything but. And they hurt the newspaper when they claim to be reporters." "Ezra Klein is a talented guy, but he's just an absolute partisan. If this is where journalism has to go, so be it, but I don't want to go there."

I'm assuming Jeff at least partially endorses this view-point.... [T]he view that Stephen Glass was tolerable, that Jayson Blair was presumably tolerable, that Judy Miller was tolerable, but that Ezra Klein is of sufficient threat to drive someone from journalism entirely is rather astounding. The Washington Post... once accepted a Pulitzer for wholly made-up story, and publishes a magazine whose arguably defining moment was announcing that a 40 year old woman was more likely to "be killed by a terrorist" than ever be married.

The press corps is toting water-pistols, and so armed, merrily carousing with the very people they claim to cover. But Ezra Klein is the scourge of the North....

Dave is--quite literally--a reporter. I got the sense reading Jeff's posts that most of the people he talked had never actually read Dave's work, so much as they saw "fallen high profile blogger," and flush with envy, reached for the can of Schadenfreude. And then the phone.... This is about people who don't want to have to compete, or be held accountable for the falsehoods they write.... No blogger better, and more routinely, defied the stereotype of simply opining. Dave traveled. Dave worked the phones. And Dave wrote stories.

And he isn't alone. Old schoolers have long depended on a wall to separate and elevate themselves above the blogs--The blogs comment on the stories. We actually make the stories. What that it would be so be easy. Things are changing. The wall is coming down.

Jeffrey Goldberg:

Yes, Yes, I Know I Started the Iraq War: I'm getting a bit of the Two Minutes' Hate from the usual suspects about my posting on Dave Weigel. The same old stuff: I started the Iraq War, I'm an AIPAC stooge, a bloodthirsty Likudnik, I'm a sociopathic fabulist, I drive a mini-van, etc. But some bloggers don't seem to get me: I understand, of course, that Israel represents the greatest threat to world peace today; that the defeat of Saddam Hussein was a victory for Bushist fascism; and I realize that Saddam had no relationship at all with al Qaeda...

On June 26, 1940, at 22:00, Soviet People's Commissar Vyacheslav Molotov presented an ultimatum note to Gheorghe Davidescu, Romanian ambassador to Moscow, in which the Soviet Union demanded the evacuation of the Romanian military and administration from Bessarabia and the northern part of Bukovina, with an implied threat of invasion in the event of non-compliance. The Soviets stressed their sense of urgency:

Now, that the military weakness of the USSR is a thing of past, and the international situation that was created requires the rapid solution of the items inherited from the past, in order to fix the basis of a solid peace between countries...

The German Minister of Foreign Affairs Joachim von Ribbentrop was informed by the Soviets of their intentions to send an ultimatum to Romania regarding Bessarabia and Bukovina on June 24, 1940. In the ensuing diplomatic coordination, Ribbentrop mainly expressed concern for the fate of the ethnic Germans in these two provinces, claiming the number of Germans in Bessarabia to be 100,000, and suggested the Prut river as a border in Bukovina...

But without a doubt toilet trained. Obedient. Properly supervised. Cautious champion of the wealthy and elite, deferential to power, obsequious to authority and prone to grovel like a good little doggy who doesn’t even need his wee wee pad anymore!

Days ago a spokesman insisted that Mr. Kyl, a Republican from Arizona, “stands by his remarks” – made to a Phoenix Tea Party group and captured on a YouTube video – suggesting that President Obama had told him in a private conversation weeks ago that the administration would not enforce border security until the Senate passed a comprehensive immigration bill. Two White House officials heatedly disputed Mr. Kyl’s account, charging that he knowingly told an untruth, prompting the Kyl spokesman to hit back in turn.... Mr.Kyl confided, “Here’s what the president said: ‘The problem is,’ he said, ‘if we secure the border, then you all won’t have any reason to support comprehensive immigration reforms.” Mr. Kyl, the second-ranking Republican in the Senate, continued, “In other words, they’re holding it hostage. They don’t want to secure the borders unless and until it is combined with comprehensive immigration reform.”

While the video has those remarks and more, on Friday the conservative National Review Online reported that Mr. Kyl said in an interview that he had been quoted out of context....

Kyl tells us that the comments were “taken a bit out of context,” and that the “they” he was referring to was the left, “the president’s base,” and not the administration. “I did not try to start a fight. This meeting happened a month ago and we were talking in the context of his political problems. He was talking about how they think that if we secure the border, you guys [Republicans] won’t have the incentive to work on comprehensive immigration reform.”

After a week of debate in the blogosphere about who is telling the truth – Mr. Kyl or the White House – that ought to clear things up.

On Dave Weigel: The bien-pensant consensus surrounding l'affaire Weigel is that it's wrong he got kicked out of his position blogging for the Washington Post. And that of course is entirely correct. But even many of the people who are on #teamweigel will quickly add that he demonstrated poor judgment in writing what he wrote, and that this should be a lesson to us all. I don't think that's true. Our wired and Twittered world is increasingly blurring the distinction between the personal and the professional, and in such a world honesty is a much greater virtue than mealy-mouthed meekness.... People have opinions.... It is kinda hilarious to see conservatives try to simultaneously complain that Weigel had erroneously been counted as one of their number while at the same time complaining that he wasn't "objective".

I do believe that Weigel resigned rather than was fired, and it's easy to see why he'd want to do that after reading the absolutely horrendous column by their lame, sad toady of an ombudsman [Andrew Alexqnder] today. Weigel is a great talent, and he'll land somewhere which will be positively encouraging to say in public what he was confined to saying in private while housed at WaPo. He's a very funny guy, and he should be able to let rip as much as he likes, without then feeling the need to apologize for being who he is.

Meanwhile, a horrible little turd somewhere is gleefully if quietly celebrating his coup (I'm sure it's a guy) in leaking Weigel's private correspondence to Fishbowl DC and the Daily Caller. Maybe he's genuinely disturbed in some way. But, to coin a phrase, this would be a vastly better world to live in if he decided to handle his emotional problems more responsibly, and set himself on fire.

Ezra Klein - On Journolist, and Dave Weigel: I began Journolist in February of 2007. It was an idea born from disagreement. Weeks, or maybe months, earlier, I had criticized Time's Joe Klein over some comments he made about the Iraq War. He e-mailed a long and searching reply, and the subsequent conversation was educational for us both. Taking the conversation out of the public eye made us less defensive, less interested in scoring points. I learned about his position, and why he held it, in ways that I wouldn't have if our argument had remained in front of an audience.

The experience crystallized an idea I'd been kicking around for some time. I was on all sorts of e-mail lists, but none that quite got at the daily work of my job: Following policy and political trends in both the expert community and the media. But I always knew how much I was missing. There were only so many phone calls I could make in a day. There were only so many times when I knew the right question to ask. By not thinking of the right person to interview, or not asking the right question when I got them on the phone, or not intuiting that an economist would have a terrific take on the election, I was leaving insights on the table.

That was the theory behind Journolist: An insulated space where the lure of a smart, ongoing conversation would encourage journalists, policy experts and assorted other observers to share their insights with one another. The eventual irony of the list was that it came to be viewed as a secretive conspiracy, when in fact it was always a fractious and freewheeling conversation meant to open the closed relationship between a reporter and his source to a wider audience.

At the beginning, I set two rules for the membership. The first was the easy one: No one who worked for the government in any capacity could join. The second was the hard one: The membership would range from nonpartisan to liberal, center to left. I didn't like that rule, but I thought it necessary: There would be no free conversation in a forum where people had clear incentives to embarrass each other. A bipartisan list would be a more formal debating society. Plus, as Liz Mair notes, there were plenty of conservative list servs, and I knew of military list servs, and health-care policy list servs, and feminist list servs. Most of these projects limited membership to facilitate a particular sort of conversation. It didn't strike me as a big deal to follow their example.

But over the years, Journolist grew, and as it grew, its relative exclusivity became more infamous, and its conversations became porous. The leaks never bothered me, though. What I didn't expect was that a member of the list, or someone given access by a member of the list, would trawl through the archives to assemble a dossier of quotes from one particular member and then release them to an interested media outlet to embarrass him. But that's what happened to David Weigel. Private e-mails were twisted into a public story.

In a column about Stanley McChrystal today, David Brooks talks about the union of electronic text, unheralded transparency, 24/7 media and a culture that has not yet settled on new rules for what is, and isn't, private, and what is, and isn't, newsworthy. "The exposure ethos, with its relentless emphasis on destroying privacy and exposing impurities, has chased good people from public life, undermined public faith in institutions and elevated the trivial over the important," he writes.

There's a lot of faux-intimacy on the Web. Readers like that intimacy, or at least some of them do. But it's dangerous. A newspaper column is public, and writers treat it as such. So too is a blog. But Twitter? It's public, but it feels, somehow, looser, safer. Facebook is less public than Twitter, and feels even more intimate. A private e-mail list is not public, but it is electronically archived text, and it is protected only by a password field and the good will of the members. It's easy to talk as if it's private without considering the possibility, unlikely as it is, that it will one day become public.

We've not quite decided on how to handle this explosion of information about people we're interested in. A newspaper reporter opposing the Afghanistan war in a news story is doing something improper. A newspaper reporter telling his wife he opposes the war is being perfectly proper. If someone had been surreptitiously taping that reporter's conversations with his wife, there'd be no doubt that was a violation of privacy, and the gathered remarks and observations were illegitimate. If a batch of that reporter's e-mails were obtained and forwarded along? People are less sure what to do about it. So, for now, they use it.

It was ironic, in a way, that it would be the Daily Caller that published e-mails from Journolist. A few weeks ago, its editor, Tucker Carlson, asked if he could join the list. After asking other members, I said no, that the rules had worked so far to protect people, and the members weren't comfortable changing them. He tried to change my mind, and I offered, instead, to partner with Carlson to start a bipartisan list serv. That didn't interest him.

In any case, Journolist is done now. I'll delete the group soon after this post goes live. That's not because Journolist was a bad idea, or anyone on it did anything wrong. It was a wonderful, chaotic, educational discussion. I'm proud of having started it, grateful to have participated in it, and I have no doubt that someone else will reform it, with many of the same members, and keep it going. Hopefully, it will lose some of its mystique in the process, and be understood more for what it is: One of many e-mail lists where people talk about things they're interested in. But insofar as the current version of Journolist has seen its archives become a weapon, and insofar as people's careers are now at stake, it has to die.

As for Dave, I'm heartbroken that he resigned from The Post. Dave is an extraordinary reporter, and a dear friend. When this is done, there will be a different name on his paychecks, but he will still be an extraordinary reporter, and a dear friend.

Weigel and the Post: The current flap over Washington Post blogger Dave Weigel has its roots in a fact that suprised me when I learned of it earlier this year: The Post appears to have hired Weigel, a liberal blogger, under the false impression that he's a conservative. The new controversy over the revelation that he's liberal is primarily the Post's fault, not his, except to the degree that he allowed the paper's brass to put him in an unsustainable position.... Weigel, whose stuff I enjoy, and whom I link almost daily here, has been the leading chronicler of the right-wing fringe since his time at Reason. I quoted him in 2008 as the leading expert on strange Obama smears. He also comes from the Washington tradition of responsible, ideological reporting at places from Reason to The American Prospect that don't require the sort of formal, careful neutrality that traditional newspaper reporters (like me) grew up with. Before the Post hired him, he'd written about whom he voted for and what he thought of various people and movements, and any of his regular readers knew that he'd migrated fairly comfortably into the liberal blogosphere, if its libertarian side. His keen understanding of the conservative fringe has been a source of steady entertainment to the left. There's no precise analog on the right, but conservatives take similar joy in reading, say, John Fund on ACORN. But the Post seems simply not to have understood what they were getting when Klein suggested they hire him. National editor Kevin Merida told me for my story on the subject in May that he never asked Weigel about his politics, and Klein said he presented him to the paper simply as the best reporter covering conservatives. (Weigel's blog is subtitled, "Inside the conservative movement.")...

Merida, in a web chat in April, was asked if the paper would be "adding more conservative/Republican voices to better balance what is now your predominately liberal/Democratic leaning coverage?” He replied, “[W]e recently have added to our staff the well-regarded Dave Weigel, and also mentioned columnists Kathleen Parker and Charlies Krauthammer. (Merida and a Post spokeswoman didn't respond to questions about Weigel this morning.)

There's a broader debate in journalism right now over whether reporters should strive for neutrality at all, or whether they should bring their own views and experiences into their writing. The Post's Klein, Weigel, and Greg Sargent (along with the fired Dan Froomkin) are the latter model.... [T]here's no sign the Post really thought this through. Even as old-timers rankled at the new hires, the paper -- scrambling for relevance on the Internet -- seems not to have considered what the buzzy personnel moves would mean for the paper's longstanding principles of detachment and neutrality in reporting.... The Post set Weigel up for a fall, and themselves for embarrassment, and that's what they got today.

I would characterize Dave Weigel not as a conservative and not as a liberal but rather as a reasonable Reason-type libertarian--which, a generation ago, would have made him "conservative" in the sense of being deeply suspicious of the forward march of the big-spending social-insurance regulatory state.

Now Weigel and his sect are, just as the Eisenhower fiscally-responsible Republicans found before, and just as the pragmatic technocrats found before them, that their quarrels with the Democratic activist base are much smaller than their quarrels with the Republican activist base. It's not that Dave Weigel is or has become a liberal. Its that the conservative activist base has gone insane.

And Dave Weigel remains the best reporter covering the conservative movement, wherever he writes.

Barney Frank and Chris Dodd put the ball over the line: [Mmy quick take is that the reformers held up amazingly well in the face of massive lobbying from banks, non-banks, Wall Street, hedge funds and the rest of the financial services industry. The bill would give the government new power to oversee systemic risk and to shut down giant failing institutions (another AIG) in an orderly way. It includes a surprisingly strong “Volcker Rule,’’ which almost prohibits banks, with their federally-insured deposits and special access to Fed borrowing, from engaging in proprietary trading. It sharply restricts the ability of banks to trade derivatives. It cleans up the whole business of derivatives by moving the trading into clearinghouses and onto exchanges where it will be transparent and properly capitalized. And it creates a new consumer protection agency, albeit within the Federal Reserve....

I’m more impressed by how much lawmakers stood their ground against relentless industry. It imposes structural limits on what banks and investment banks can do.... I have become convinced that structural changes -- telling banks they have to stay out of certain lines of business, and subjecting all the players to new regulation -- are the only way to protect against the excesses that gave us this financial crisis. Trying to prevent disaster by having regulators micro-manage a bank's risk exposure is necessary but insufficient. Over time, the banks are just too good at lulling the regulators to sleep.

All this will cut into bank profits... could clobber the earnings of Goldman Sachs... is likely to reduce the supply of EZ Credit by forcing banks to hold both more capital and better-quality capital. But those are not necessarily bad consequences for the overall economy.....

Republicans and industry lobbyists have been warning about "unintended consequences'' of almost every single substantive reform. But if the bill turns out to be heavy-handed, Congress will undoubtedly respond to the howlings from industry and make changes.
In the meantime, though, Republicans will deserve a good measure of the blame. For the most part, they refused to engage in the process and simply worked to block any legislation from passing. Had the GOP been willing to engage, Republicans would have been able to soften many provisions and we might have had a more thoughtful bill. Instead, they abdicated responsibility and contented themselves with making cat-calls from the sidelines. It’s a valid political strategy, but it’s a lame approach to governance.

Print: The central bank says it has a trio of missions... maximum employment, stable prices, and moderate long-term interest rates.... In a speech earlier this month, Bernanke noted that "in all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost nationwide over 2008 and 2009." In another recent speech in Michigan, he acknowledged that "high unemployment imposes heavy costs on workers and their families, as well as on our society as a whole." But he doesn't seem inclined to do anything about it.... Could Bernanke go down in history as the Federal Reserve chairman who won the crisis but lost the recovery? If I were in Congress, in the White House, or at the Fed, and we were facing 9.7 percent unemployment, my hair would be on fire.... When the crisis hit, as David Wessel showed in In Fed We Trust, Bernanke acted with courage, urgency, and imagination. He used all the Fed's powers, and some it may not have possessed, to avert collapse. His actions won him reappointment to a second term.

But he's showed no such urgency in grappling with high unemployment....

I think there are two more compelling explanations. First, it could be that Bernanke and the Fed are simply exhausted. In 2008 and 2009, the central bank did everything in its power and then some to rescue the economy from depression. It took rates to zero, lent directly to companies, and expanded the Fed's balance sheet massively. More recently, it has bought $1 trillion of mortgage-backed securities to prop up the ailing housing market. The Fed used up all its resources saving the system. Now it's time for the political system and the private sector to do their thing.

Second, it could be a failure of imagination.... Bernanke and the Federal Reserve have proved themselves to be poor predictors of how big macroeconomic trends... can have negative social, economic, and political impacts.... So perhaps it's not surprising that the Fed doesn't see how persistent long-term unemployment can erode labor force skills.... [P]ersistent excess capacity in the labor force limits the ability of workers at all levels to get higher wages and better benefits. It's bad for government finances, as payroll taxes provide an important source of revenue. It's bad for the housing market and for the financial sector as a whole...

Goldberg's War, By Ken Silverstein (Harper's Magazine): Last week Jeffrey Goldberg, [then] the Washington correspondent for the New Yorker, spoke at a panel session here that asked the burning question, “Can Liberals—and Only Liberals—Win the War on Terror?” Readers may recall that Goldberg was, in the year leading up to the war, a strong proponent of invading Iraq, and wrote a number of articles that echoed the administration's arguments for toppling Saddam Hussein. That was no coincidence, since his reporting relied heavily on administration sources and war hawks (and in at least one crucial case, a fabricator).

Goldberg and his friends predicted that events would unfold smoothly in Iraq, and now that they haven't, he wants to make sure that U.S. troops stay put and fight the war that he helped promote. The Democrats, he told the Washington panel, can regain power only by reaching out to their conservative wing (and to voters even further to the right who over the years have migrated from the party to the G.O.P.). He's been interviewing members of this vital voting-bloc, he said, and he was able to report that they would “like to leave Iraq but they'd really like to win Iraq” and are looking for “a party and leadership” that can lead the way to victory.

Prior to the American-led invasion of Iraq, Goldberg wrote two lengthy articles in the New Yorker which argued that there were extensive ties between Al Qaeda and Saddam Hussein. Much of what he wrote in a mammoth March 2002 story was based on the testimony of Mohammed Mansour Shahab, a prisoner in a Kurdish-controlled town in northern Iraq. Jason Burke of the London Observer later demolished Goldberg's story when he spoke to the same prisoner and found that he couldn't even describe the city of Kandahar, where Shahab had claimed that he'd traveled on Al Qaeda-related business. “Shahab is a liar,” Burke concluded. “[S]ubstantial chunks of his story simply are not true.” Goldberg also peddled the Iraq–Al Qaeda connection during a February 2003 interview on All Things Considered, delivering the grim news that Saddam's agents had some years earlier helped Al Qaeda “in the teaching of the use of poison gas.”

Goldberg's hysteria peaked when it came to his claims regarding Saddam's “weaponization” of a biological agent called aflatoxin. Aflatoxin, he wrote on October 3, 2002 in Slate, “does only one thing well: It causes liver cancer. In fact, it induces it particularly well in children.” (In this same Slate item Goldberg attacked Slate contributors who opposed the war, saying the critics had “limited experience in the Middle East” and that this led them to “reach the naive conclusion that an invasion of Iraq will cause America to be loathed in the Middle East, rather than respected.”) Within an hour of President Bush signing a congressional resolution authorizing the use of force against Iraq, Goldberg was on CNN and again claimed that Saddam had “weaponized aflatoxin, which is a weapon that has no military value. Its only value is to cause liver cancer, primarily in children.”

Saddam, to state the obvious, was indeed an evil man, and any experimenting his regime was doing with aflatoxin would have been cause for concern. But the September 2004 report from Charles Duelfer, the Bush Administration's chief weapons inspector in Iraq, stated that Iraqi scientists conducted experiments with aflatoxin, possibly as a means to “eliminate or debilitate the Regime's opponents,” but concluded that there was “no evidence to link these tests with the development of BW [biological weapons] agents for military use.” (His broader conclusion was that there was “no direct evidence that Iraq, after 1996, had plans for a new BW program or was conducting BW-specific work for military purposes...

A makeshift government may have capitulated, giving way to panic, forgetting honour, delivering their country into bondage. Yet nothing is lost!

Nothing is lost, because this war is a world war. In the free universe, immense forces have not yet swung into operation. Some day these forces will crush the enemy. On that day, France must be present at the victory. She will then regain her liberty and her greatness. Such is my goal, my only goal!

That is why I urge all Frenchmen, wherever they may be, to unite with me in action, in sacrifice and in hope.

TF: "The divide isn't, as this The Hill writer [Ian Swanson] inaccurately suggests, because Europeans worry about debt crises while the president worries about politics. There is a serious debate here over global economic policy, and cutting aggregate demand at this moment could be a very serious mistake. It's a question of interests, especially when it comes to export-oriented nations like Germany and China that rely on the rest of the world to purchase their goods and don't want to change that equation.... [T]he country best positioned to take advantage of Keynesian stimulus is Germany, whose responsible budgeting makes it an ideal candidate for effective short-term stimulus and whose robust social-safety net makes targeting that stimulus relatively easy. Premier Angela Merkel's refusal to engage these ideas will likely backfire in some way thanks to the inextricable ties of the global economy."

MT: "Robert Stavins says climate change legislation is still possible and, after an extensive review of all the "real options for climate policy in the United States," he concludes that the best available alternative is an economy-wide cap-and-trade system. (It's hard for me to envision an economy-wide cap-and-trade system finding the political support it needs to be enacted, but I hope I'm wrong. This is quite a bit shorter than the original and, in addition, the original is dense with links to supporting documentation.)"

XB: "9.25pm: Last thoughts before I ring me a hearse. That was beyond tennis. I think it was even beyond survival, because there is a strong suggestion (soon to be confirmed by doctors) that John Isner actually expired at about the 20-20 mark, and Mahut went soon afterwards, and the remainder of the match was contested by Undead Zombies who ate the spectators during the change of ends (again, this is pending a police investigation). Still, if you're going to watch a pair of zombies go at each other for eleventy-billion hours, far into the night, it might as well be these zombies.... The historic duel between John Isner and Nicolas Mahut will resume tomorrow and play out to its conclusion. Possibly.... As the woman in the stands might say, "Wa-ha-la-wa-ha-la-la-la!".... If you're going to liveblog a tennis match in Necropolis, it's reassuring to have someone there to hold your hand."

I was born and grew up in a middle-class family. My father was a professor of of mathematics at a polytechnic college, a brilliant tea her with moderately liberal leanings but without any serious interest in politics.... I was the second of four children.... My passion was mathematics.... In the autumn of 1904 enrolling in St. Petersburg University I registered with the law department because it offered courses in economics and statistics...

Suddenly Russia captured the front pages of [Italian] newspapers.... Port Arthur fell.... [T]he poppers reported the beginning of a general strike in St. Petersburg.... On January 9 all workers in the capital were to march to the Winter Palace, and Father Gapon was to kneel before the Tsar and hand him a petition for the eight-hour day for workers, an immediate end to the war, and the convocation of a Constituent Assembly.... The police warned the public that crowds would not be admitted to the Winter Palace. Father Gapon replied that no force could out itself between him ad the Tsar.... I left Florence.... At Munich I had to wait several hours Newsboys were selling fresh extras.... BLOODSHED IN ST. PETERSBURG... REVOLUTION IN RUSSIA.... Sitting on the station steps, I read.... [T]he crowds did not hear the order to stop, if any was given. Nor did they understand the meaning of the trumpet preceding the order to fire. Hundreds fell dead... thousands were wounded.... I returned to Russia with a strange feeling of frustration and guilt. Frustration, because I had discovered how little I knew about my own country; guilt, because I had been so far from it on Bloody Sunday....

The response was unanimous: to close the University indefinitely and call on other students in Russia to do the same. This was by no means the first strike of Russian students but it was the first universal and purely political strike.... [T]he students felt that they, as the young geneation of intellectuals, were spokesmen for the nation and its spearhead in the struggle for freedom.... The news from the East became worse.... The government... oscillated between brutal reprisals and concessions.... [T]he humiliating peace treaty with Japan brought a new outburst of public indignation. All Russia seemed ablaze.

About that time I decided to join the revolution.

I had not been converted by any particular book of propagandist, and I was not obsessed by blind hatred of the Tsarist regime.... I felt the urge, if not the moral obligation, to be with the people in the decisive hour.... I knew this step would be a blow to my father.... "I am going to join an underground organization," I said.... My father did not try to dissuade me....

In the University mess the next day I met a student who I knew as a Marxist and told him I would like to get in touch with someone connected with the party. He seemed surprised but took me to another student.... "You want to join the"... Russian Social Democratic Workers' Party[?] When I said yes, he asked whether I was a Bolshevik or a Menshevik. I confessed my ignorance.... "That is simple," he replied. "The Bolsheviks are for the revolution, while the Mensheviks seek a compromise with Tsarism and are ready to betray the workers." Obviously the gnome was a Bolshevik. Since I had no intention of betraying the workers, I told him that, according to his definition, I was a Bolshevik. "Are you familiar with our organizational and tactical problems?" he continued. "Have you read Lenin's recent writings?" And he gave me two thin booklets: "What Is To Be Done?" and "One Step Forward, Two Steps Back."... At my next meeting with the gnome, I told him that I found Lenin's pamphlets interesting as samples of prerevolutionary thinking in the party but could not see how his ideas could be applied to current conditions. The gnome looked shocked but after some meditation asked me to join....

[...]

On the morning of October 15, General Trepov notified the president of the University that he would use military force that day to end the revolutionary gatherings. A flying meeting was held in the half-empty main hall.... At eight o'clock a crowd began to assemble. Members... warned... "This meeting may end in a clash with the troops. Wouldn't you rather stay away?" The workers took the warning in good humor. "You are talking about Trepov;s order not to spare cartridges? He won't have enough cartridges for all of us." The crowd--perhaps--fifteen thousand--was not quite as large as usual, but its spirit was excellent....

[...]

Then I interrupted the speaker.... "Comrades! An hour ago I warned you against the provocatin planned by Trepov!... Troops are massed before this building.... We are unarmed, comrades.... We shall abandon this place, but we... will come back." The persons in the rear of the hall began to leave.... Suddenly a loud voice asked, "When shall we come back?" Without thinking I threw out a replay. "Tomorrow! Armed, ready to fight!" "Set the hour!" "Three o'clock!" "We will come back," roared the crowd. Leonid, a Bolshevist agitator... grabbed my hand. "What are you doing?" he whispered. "Did the party authorize an armed demonstration?" But I could not stop.... My voice broke. I nodded to Leonid to replace me. "All back tomorrow, at three o'clock!" he shouted. "Armed! Ready to die!"...

On the morning of October 16, the University was in the hands of the Military Governor of St. Petersburg, but St. Petersburg itself was in the hand of the striking workers and their Soviet...

[...]

The Manifesto of October 17 satisfied the conservatives.... It did not, however, satisfy the moderate liberals.... The rise of the Soviet had come as a rather unpleasant surprise to the Bolsheviks.... They were accustomed to think of... political parties and trade unions.... The latter were supposed to take care of the economic interests of the workers while the party assumed political leadership.... Furthermore, the Bolsheviks could not forget that the Soviet had been founded by the Mensheviks.... Soon after the end of the strike, the Bolshevist party launched an attack on the Soviet....

[...]

He asked us to explain what the peasants might expect.... My arguments for establishing a government for the people and by the people met with general approval.... [T]he village patriarch came to the crucial question: "And what about the Tsar?" I answered, "There is no need for a Tsar under a government by the people." Then hell broke loose.... "Get a rope, brothers!" Standing on a bench I shouted to the crowd, "Listen! Most people in the cities and on the railroads think as we do. If you rope us and then dare to appear in the city or on the railroad, our friends will rope you. Is that what you want?"...

[...]

The collapse of the stock market was headlined in the newspapers and everyone began to talk of the imminent collapse of the ruble. This crisis gave the revolutionary parties a new idea. The St. Petersburg Soviet issued an appeal... withdraw... money... ask for... gold in payment of wages and salaries. This effort to foment panic was completely unrealistic. Workers had practically no deposits.... On November 26 the shock troops of General Trepov surrounded the headquarters of the St. Petersburg Soviet and seized its president.... [T]he Soviet fell into the trap... resolved: "The Tsarist government has captured the President of the Soviet of the Workers. The Soviet has elected a new President and will continue its preparations for armed revolt." These were empty words. The Soviet could not continue its "preparations for armed revolt" because it had never started such preparations.... On December 2 the Soviet met... everything hung in the balance. The meeting opened with a lengthy report... a piece of daydreaming. The reporter--it may have been Trotsky--intoxicated with his own oratory, elaborated on th plan to force the government to surrender by issuing a manifesto that would bring about its bankruptcy... called on the people of Russia to... ask for payment in gold and silver... refuse to pay taxes... oppose the repayment of foreign loans.... [The next evening] a meeting of the Soviet was called.... Approaching the hall an hour after the meeting was supposed to have come to order, I noticed that something was wrong: detachments of police, military patrols....

Before dawn [we] prisoners were loaded into police vans.... Our destination was the central prison--the Crosses.... Two weeks after the arrest, during gth usual half-hour solitary walking... the news: Moscow is in revolt. The troops are refusing to fire. The city is in the hands of the workers. I asked my guard.... He... promised to bring me a "good" newspaper... I recognized it as a Menshevist newspaper... the revolt of the workers in Moscow had been drowned in blood...

[...]

All was quite in the Crosses.... I was confused.... Life was not so simple as it had seemed to me half a year before when I told my paents of my decision to join the revolution. I had dreamed of being with the people. But where were "the people"? I had some doubts whether the road we had followed was right, but I knew I'd neither chosen nor determined the road. I had, therefore, no feeling of guilt for the defeat. Simply, I was lost and did not know what I should do next....

Early in January, 1906 the government decided to limit the case of the St. Petersburg Soviet to two or three score men. All the others... some five hundred in all, were released, I was among them...

[...]

It is pointless to speculate what the further course of Russian history would have been if absolutism had been abolished by the Manifesto of October 17 [1905]. this is certain, however: if democratic forces had triumphed at that time, a new balance of political power would have developed in Russia and the rest of the world. Under a constitutional regime in Russia there would have been no place for Rasputin, no place for a second revolution in the spring of 1917, no place for the seizure of power by Lenin and his acolytes before the end of the same year. Seen through the prism of later events, the first Russian revolution acquires a new meaning. It had no revolutionary tribunals. It had only martyrs. They believed they were fighting for the freedom of their own country, but actually much more was at stake. Much that the world has suffered in the intervening decades was born of their defeat...

Economics and Politics: Against The Super-Asinine, The Gods Themselves Contend in Vain: Brad DeLong wonders how the proponents of tight budgets and tight money are prevailing in the midst of mass unemployment, low interest rates, and incipient deflation. It’s actually not all that surprising. Horrifying, but not surprising. The case for expansionary policies in the face of a slump is intellectually difficult; Keynes described the writing of the General Theory as a painful process of discovery, and so it is. The natural instinct of almost everyone is to think that tough times require tough measures, and that if the economy is suffering, the government should tighten its own belt. It would take a clear consensus from economists to overcome that natural bias. And that consensus has, of course, been lacking — largely because a significant proportion of the economics profession has spent the last three decades systematically destroying the hard-won knowledge of macroeconomics. It’s truly a new Dark Age, in which famous professors are reinventing errors refuted 70 years ago, and calling them insights.

On top of that, anti-stimulus appeals to a fundamental meanness of spirit that is always present in the political world. The super-asinine we shall always have with us.

May I say that I expected something like this? It’s part of the reason I was so anxious to see Obama go for the maximum stimulus possible: it seemed obvious that he would have only one shot...

Not obvious to me--not at the time.

I do say that if, as appears to be the case, Paul Krugman is always right, it would be really, really, really, really helpful if he were more optimistic...

How Dangerous Is U.S. Government Debt?: [T]he [Triffin] dilemma.... To supply the world’s risk-free asset, the center country must run a current account deficit... until the risk-free asset that it issues ceases to be risk free.... The endgame... is a global, wholesale dumping of the center country’s securities. No one knows in advance when the tipping point will be reached, but the damage... will be readily apparent afterward. For a long time now, the United States has seemed vulnerable to the fate that Triffin predicted.... Late last year... danger came close to becoming reality... sizeable budget deficits... ever-increasing... government debt... end of the Federal Reserve’s crisis-driven program... an uptick in inflation expectations, the ten-year Treasury yield increased by fifty basis points... further increases were likely... substantially raise the cost of future government borrowing... threaten any recovery.... [F]oreigners... dollar... falling sharply. Early in 2009 it fetched almost eighty euro cents in Frankfurt or Athens; by autumn it was worth sixty-seven euro cents. Foreign investors... were getting nervous. Luo Ping... summed up the angst:

Except for U.S. Treasuries, what can you hold? Gold? You don’t hold Japanese government bonds or UK bonds. U.S. Treasuries are the safe haven. For everyone, including China, it is the only option . . . . We know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do.

Was Triffin’s endgame—sudden reserve diversification, or the act of foreign governments abruptly shifting their funds from dollars to other currencies—about to become a reality? If so, the likeliest benefactor was the eurozone...

To this, there are only four things to say:

First, Luo Ping's declaration is mischaracterized. Warnock frames it as a declaration that the bite of the Triffin dilemma was about to manifest itself. But in fact it was the reverse. It was a declaration that the bite of the Triffin dilemma was still far off--because the only credible replacement for the U.S. dollar, the euro, was not in fact a credible replacement at all.

Second, the references to asset price movements in Warnock's piece are... let's call them unusual... Roll the tape on the exchange rate:

Warnock does not tell his readers that since the start of the recession the dollar has strengthened from 67 euro cents to 83 euro cents. He talks about the red arrow only:

Early in 2009 [the dollar] fetched almost eighty euro cents in Frankfurt or Athens; by autumn it was worth sixty-seven euro cents...

He gives his less-informed readers no clue that the movement he points to was swamped both before and after by larger movements in the opposite direction--that the sum is not the upward-pointing red but the downward-pointing blue arrow.

Now the dollar has been on a long-term weakening trend against the euro since the collapse of the dot-com bubble:

But to claim that the movement from January to October 2009 is the important move readers should pay attention to--well, that's an intellectual foul, deserving of a fifteen=yard penalty. An honorable economist would only say "[e]arly in 2009 [the dollar] fetched almost eighty euro cents in Frankfurt or Athens; by autumn it was worth sixty-seven euro cents..." if it was surrounded by clauses "between the start of the recession and early 2009 the dollar strengthened from sixty-seven to eighty euro cents" and "between late 2009 and mid-2010 the dollar strengthened from sixty-seven to eighty-three euro cents." But to add those pieces of information would undermine Warnock's alarmism. So he doesn't include them.

Third--well, Warnock's discussion of bond yields is even worse. Roll the tape again on Treasury bond yields:

Warnock does not say that since the start of the recession, in spite of the enormous expansion in federal debt held by the public, U.S. Treasury bonds have strengthened and risen in price as required yields have fallen. He talks about the red arrow only

the world’s risk-free asset, the ten-year U.S. Treasury bond, was sagging... yield increased by fifty basis points from 3.25 percent to 3.75 percent... further increases were likely...

Once again, he provides his less-informed readerswith no clue that the movement he points to was surrounded both before and after by larger movements in the opposite direction, and that the sum is not the upward-pointing red but the downward-pointing blue arrow.

It is not even true that the U.S. Treasury bond is on a long-term weakening trend:

Confidence in the safety and soundness of U.S. Treasury bonds is greater than--well, greater than it has ever been in my lifetime.

My fourth response is implicit in the first three.

We who follow the numbers know six facts:

First, the bite of the Triffin dilemma--which will come someday--is further off now than it was in the fourth quarter of 2007, at the end of the last business cycle expansion.

Second, international market confidence in the dollar as reserve currency and the U.S. Treasury bond as reserve asset is stronger now than it was 2 1/2 years ago. Will the period of the U.S.'s exorbitant privilege end? Someday. Could it end quickly and surprisingly? Yes.

But, third, the chance that the period will end tomorrow is less than the chance of a sudden end was 2 1/2 years ago, as confidence in the dollar and the Treasury bond has strengthened.

And, fourth, the period's expected lifetime is greater now than it was 2 1/2 years ago, as the U.S. has proved an island of stability in a tumultuous world.

Thus, fifth, the someday bite of the Triffin dilemma is a less urgent and important problem than it was 2 1/2 years ago.

And, sixth, the recession has brought us other urgent and important problems.

Anyone who is interested in informing their readers about the U.S.'s current Triffin Dilemma has to lead their discussion with those facts.

Warnock doesn't.

Warnock works hard to avoid bringing any of these to his readers' notice.

That's not a good thing to do.

We are talking basic canons of data presentation here. Francis Warnock should not present snippets of the data while hiding the full time series. Sebastian Mallaby should not approve documents that do not present the data as publications of the Center for Geoeconomic Studies. Richard Haass should not have a Director of his Center for Geoeconomic Studies who does not exercise quality control. Carla Hills and Bob Rubin should not chair such an institution without performing a thorough housecleaning. Ryan Avent should not link to documents that are in the data mispresentation business.

God knows the level of debate is low enough. We don't need to lower it even more. Warnock's is a genuine piss-on-your-leg-and-tell-you-it's-raining piece: He says the dollar has lost value: it has gained. He says U.S. Treasury yields have risen. They have fallen.

the Senate should confirm him for a second term in spite of his mistakes: he is, I think, one of the very best we can get for the job right now, and he won't make the same mistakes again.

"won't make the same mistakes again" even as he was caught in flagrant delicto, in the act of not doing more QE... Since then, of course, America's suffered through five months of mostly poor employment numbers, disinflation, and the Euro-debt crisis. Ben Bernanke responded by ... making the same mistakes again. But Brad is too much the gentlemen-scholar to point out others shortcomings (even if they affect millions of people).

Not doing more QE last summer was a howler, not doing more QE last winter was a howler, and not doing more now is a howler. If there was cause to do $1 trillion more in QE last fall, there's cause to do $2 trillion now. And Ben Bernanke believes it's best to let the markets be. Laissez faire marche!

French light cruiser Massilia arrives at Casablanca in North Africa with senior French government officials aboard--ex-Premier Edouard Daladier, ex-Secretary of the Navy Cesar Campinchi, ex-Secretary of the Interior Georges Mandel, and more than twenty others. Daladier, Mandel, and Campinchi announce the formation of a resistance government with Mandel as Premier. Governor-General Nogues of French Morocco seizes the Massilia and orders the politicians held incommunicado onboard.

DB: "If I went back in time and informed the Obama administration's economics people that the stimulus they were planning to enacted resulted in the May 2010 unemployment rate being 9.7%, they would freak out and realize that more needed to be done. Now that we're here, there's not a lot of freaking. And I'm not surprised that economists will continue to come up with increasingly clever explanations as to why this is the new normal, as they always do. The Great Recession will just been seen as the Great Shirk, with all those lucky duckies on extended periods of funemployment. Yes I'm repeating myself. But, hell, maybe eventually someone will listen and it's more important than Sarah Palin's latest tweet."

MK: "Why, I’m so old that I remember when market-simulating pollution-control regulations – polluter charges or cap-and-trade – were the official conservative alternative to command-and-control regulation. I was sympathetic to that critique, and frustrated about the environmental movement’s unwillingness to see reason. But now that the enviros have embraced a GHG tax or its cap-and-trade equivalent as the way to deal with global warming, conservative support is nowhere in sight. They’re all too afraid of Grover Norquist. Remember this the next time a conservative explains how we ought to voucherize public education. The minute that happens, the conservatives will come back and decide that we need to means-test the vouchers. That done, they’ll attack the remaining program as “welfare.” This is not a group of people it’s possible to do business with."

BS: "A stunning front-page article in Saturday's Washington Post moves the paper firmly into conservatives' dream universe on deficit policy. "Stimulus plans run up against deficit fears" by Lori Montgomery serves up this whopper: 'If Congress doesn't provide additional stimulus spending, economists inside and outside the administration warn that the nation risks a prolonged period of high unemployment or, more frightening, a descent back into recession. But a competing threat -- the exploding federal budget deficit -- seems to be resonating more powerfully in Congress and among voters.' There you have it: the budget deficit is an issue that's resonating more with voters than the issues of high unemployment or the possibility of further economic downturn generally. It's a trendy right-wing meme of the last few months, but here it is in the news pages of the Washington Post. But is this notion supported by what the polling actually says? No. Not even close."

Brookings should have cleaned house as far as its national security staff is concerned long ago. Just saying. Michael O'Hanlon: "At this moment, as we enter into perhaps the most crucial six months of the entire war, I hope and pray that President Obama will decide we cannot afford to be without the leadership of such an amazing American." Duncan Black: "Eight and a half years later we're starting 'the most crucial six months'? Make it stop."

Wimbledon 2010 live blog: 2.15pm: Let's pause for some updates from around the ground. Florian Mayer has now scooped the third set from Queens runner-up Mardy Fish and now leads 6-7, 6-3, 6-4. Kim Clijsters leads Karolina Sprem 6-3, 4-1 on Court One, while Nicolas Mahut and big-serving John Isner are locked at two sets all on Court 18....

3.30pm: OK, am now back from my lunch-break tour of the grounds, where I walked the walkways and cafes, peered into outside courts and shamelessly eavesdropped on snatches of passing conversations. These seemed to run as follows... "Are they showing the football anywhere?" "When he came out, we shouted 'We love you, Roger!' He didn't say anything." "Where can we watch the England game?" "Two salads? That's £34!" (this delivered with the bright, happy air of someone breaking extremely good news) "Who's the one with the funny serve? You know - the REALLY funny serve." "Is there nowhere that we can watch the football?" So far as I can work out, there is nowhere they can watch the football. I assumed they might show it on the big screen by Henman Hill, but it wasn't playing when I walked by 15-minutes ago (perhaps it's on now). However, it does play on the screens in the press area, where most of the journalists seem to have briefly forgotten the tennis. England, in case you didn't know, are currently 1-0 up.

3.45pm: Shall we catch up on some tennis results (I'm guessing the football is being tackled elsewhere)? I stood out by Court 14 and caught the closing stages of Jurgen Melzer's impressive fightback against Viktor Troicki, the 16th seed winning through 6-7, 4-6, 6-3, 7-6, 6-3.... Andy Roddick wins through 4-6, 6-4, 6-1, 7-6 to send gifted, febrile Michael Llodra out of the tournament.... The drama has now moved, lock, stock and barrel, to Court 18. There John Isner and Nicolas Mahut are locked in a deadlock that shows no sign of ending. The pair are tied at 15 games all in the final set of a mountainous struggle.

4.05pm: The Isner-Mahut battle is a bizarre mix of the gripping and the deadly dull. It's tennis's equivalent of Waiting For Godot, in which two lowly journeymen comedians are forced to remain on an outside court until hell freezes over and the sun falls from the sky. Isner and Mahut are dying a thousand deaths out there on Court 18 and yet nobody cares, because they're watching the football. So the players stand out on their baseline and belt aces past each-other in a fifth set that has already crawled past two hours. They are now tied at 18-games apiece. On and on they go. Soon they will sprout beards and their hair will grow down their backs, and their tennis whites will yellow and then rot off their bodies. And still they will stand out there on Court 18, belting aces and listening as the umpire calls the score. Finally, I suppose, one of them will die. Ooh, I can see the football out of the corner of my eye. England still 1-0 up!

4.25pm: News from all-around. Venus Williams is galloping towards the first set against Ekaterina Makarova on Centre Court. Monfils and Beck are into a fourth set.... But none of this means a thing to the Everlasting Zombie Tennis Players on Court 18. They hear nothing but the thud of the ball off their racket and the sonorous tones of their Zombie Umpire. They can think of nothing beyond their next trudge to the chair for a short sit down before the ordeal begins again anew. They have forgotten all about Wimbledon and the world beyond the backstop. John Isner's serving arm has fallen off. Nicolas Mahut's head is loose and rolling bonelessly on his neck. And yet still they play on. The score is now 21-21 in the fifth and final set. This is now, officially, the longest final set in Wimbledon history.

4.45pm: It's ace number 62 for John Isner in the Never-Ending Story of Court 18, a tournament record. But, incredibly, Mahut seems to be coming back at him. He forges his way to the first deuce of the set thanks to a backhand lob that somehow gets over the head of the American, who stands six-foot-nine in his stockinged feet. Both men, as has been established, are now dead on their feet, although the Frenchman looks the marginally less rotten (a few less worms wriggling from his eye sockets). Naturally Isner holds on, He staggers, sightless, to the net and scrapes off a desperate drop volley for a winner. The American now leads 24-23. But inevitably we are still on serve....

5.05pm: In the world beyond Court 18, the Wimbledon matches are won and lost. There are victories for Feliciano Lopez and Nadia Petrova, Venus Williams andGael Monfils. Federer is 2-2 against his qualifier on Court One, while Novak Djokovic and Taylor Dent are limbering up on Centre. On Court 18 it is very different. On Court 18 a match is not won and lost; it is just played out infinitely, deeper and deeper into a fifth and final set as the numbers rack up and the terrain turns uncharted. Under the feet of John Isner and Nicolas Mahut, the grass is growing. Before long they will be playing in a jungle and when they sit down at the change of ends, a crocodile will come to menace them. They are poised at 25 games apiece in a deciding set that is now nudging three hours. I don't know who's going to win this one. Mahut looks slightly more alert and industrious, but Isner (flat-footed, grey about the gills) has a thunderous serve to fall back on. Time and again he falls back on it. Time and again it gets him out of trouble. It keeps thumping against the turf and splatting against the backstop. Mahut is now serving to stay in the match at 25-26.

5.25pm: Isner and Mahut are currently level at 28 games apiece in what people are now telling me is the longest match in Wimbledon history. Over on Court 14, Thiemo De Bakker and Santiago Giraldo are locked at 14-14. This suggests that the curse of Court 18 has started to infect the other courts too. What happens if they just keep going? What happens if, from here on in, every single match at Wimbledon heads into a decider and then decides to stay there, with neither player ever reaching an advantage; with the scoreline simply sailing off the map and into the wide blue yonder?...

5.45pm: False dawns and shimmering mirages out on the jungle Congo of Court 18. For a moment there, I thought Isner was cracking. The man can barely move his feet any more and Mahut still has some bounce, lashing a backhand return for a clean winner. But what John Isner still has is his serve. It is a brutal serve, heavy and reliable. He totters to the baseline, fires some aces and goes ahead 32-31, leaving Mahut to serve to stay in the match for what I am reliably informed is the 2,362nd time. This he duly does and so we go merrily on through the jungle. The score stands at 32-games apiece; the clock at six hours and thirty-odd minutes. It is now the longest match in Grand Slam history....

5.55pm: Is it a dream, a lie, or is John Isner really about to triumph in the longest match in tennis history? The American flicks a backhand return up the line to reach 15-40, with two match points.... So yes, it was a dream, it was a lie. The Amazing Zombie Tennis Pros are not through with us yet. Ha ha ha ha! Ha ha ha!

6pm: The score stands at 34-34. In order to stay upright and keep their strength, John Isner and Nicolas Mahut have now started eating members of the audience. They trudge back to the baseline, gnawing on thigh-bones and sucking intestines. They have decided that they will stay on Court 18 until every spectator is eaten. Only then, they say, will they consider ending their contest.

6.10pm: Let us pause for a brief detour to the land of the living....

6.25pm: The scoreboard is barely visible through the grass and weeds and trails of Spanish moss. It shows that John Isner and Nicolas Mahut are locked at 37 games each in the final set. I'm wondering if maybe an angel will come and set them free. Is this too much to ask? Just one slender angel, with white wings and a wise smile.... [T]he Zombie Umpire has lost his voice and now calls the score in the croak of a crone. Zombie Mahut double faults to allow Zombie Isner a glimmer of hope at deuce. It is merely a glimmer. Mahut comes through and we stand at 39-all.

6.48pm: The sun is sinking and the court is a blur. It is at this stage that Zombie Isner starts to look like Zombie Mahut and the Zombie Umpire stops croaking and starts to chirrup like a grasshopper. In other words, we're here but we're gone. Is anyone still alive up in the stands or have they now all been eaten? It's 40-40. And that's games, not points....

7.10pm: It's 43-43 and John Isner is serving to make it 44-43, after which Nicolas Mahut will serve to make it 44-44. I'm indebted to the commenter who explained that Nicolas Mahut recently knocked the sensor of the net and that this is why the umpire climbed down off his chair and started slapping the cord with his hand, with his mouth hanging open and vomit all down the front of his shirt. For a moment I had hoped the slapping might have been his way of summoning the angel we've all been talking about, the one that will come down and usher the contestants up to their Eternal Rest. But no. Turns out it was just something to do with the net sensor. Isner moves to 44-43. Mahut now serving to make it 44-44. Fingers crossed he makes it!

7.20pm: And so this match goes on and on, on and on. Somewhere along the way, the players have mislaid their names. The man who was once Mahut is now a string-bag of offal. The man who was Isner is a parched piece of cow-hide. The surviving members of the audience don't seem to care who wins. They just cheer and applaud whoever looks likely to make a breakthrough and bring this nightmare to a close. Invariably they are disappointed. The offal looks fresher, possesses a piercing backhand and still throws itself about the court on occasion. But the cow-hide can serve and has the advantage of going ahead by one game and forcing the offal to catch-up. This the offal is only too happy to do. It hits a backhand down the line and then follows that up with an ace, and the score now stands at 45 games apiece.

7.30pm: Let it end, let it end, it's 46-all. It was funny when it was 16-all and it was creepy when it was 26-all. But this is pure purgatory and there is still no end in sight....

7.45pm: What happens if we steal their rackets? If we steal their rackets, the zombies can no longer hit their aces and thump their backhands and keep us all prisoner on Court 18. I'm shocked that this is only occurring to me now. Will nobody run onto the court and steal their rackets? Are they all too scared of the zombies' clutching claws and gore-stained teeth? Steal their rackets and we can all go home. Who's with me? Steal their rackets and then run for the tube. It's 48-48. What further incentive do you need?

8pm: Don't look now but I think the cow-hide has officially expired. John Isner stands at the baseline. He is facing the right way but he is no longer moving and the string-bag of offal peppers him with aces left and right to bring the score to 50-50. But Cow Hide is still facing the right way and that says something. And he is still vertical, and that says something too. What it says, unfortunately, is that the match is not quite over yet.

8.05pm: In the stands, a woman is laughing. She laughs long and hard and her laugh is the sort of ghastly yodel you normally hear in antique horror movies about Victorian insane asylums. "Wa-la-ha-la-wah," she goes. "Wa-la-ha-la-ha-la!" Will nobody drag her out? Call in the goons in white coats. Get this woman to a lobotomy! Mahut is serving to make it 51-51. Wouldn't you know it, he does. He makes it to 51-51, finishing up with an ace.

8.20pm: Wow, is that really the time? I must go home; can't think what's kept me. Wa-ha-la-ha-la-ha-la! Oh yes, just remembered. The tennis. The tennis. Out there on Court 18, our two white-clad derelicts dig deep into the reserve tanks and remember to run again. They move along the baseline, coaxing the ball back and forth, back and forth until Mahut falls over. Is he ever going to get up? Astonishingly, he does. At game point, he pushes Isner into his backhand corner, staggers in to the net and dinks a drop volley. It's 53-53.

8.30pm: "John!" chants the crowd. "John! John! John!" They're either calling for Isner or calling for a bathroom break, or possibly both. I'm still not convinced they want Isner to win any more than they want Mahut to win. They just want someone to win; anyone to win. They just long to be released and to go back home. Possibly via the bathroom. They are chanting "John!" because Isner gets to 0-30 on Mahut's serve and is therefore just two points from victory. Chant all you like, it won't change a thing. Mahut fights back and the score is tied again, at 54 games apiece.

8.40pm: It's 56 games all and darkness is falling. This, needless to say, is not a good development, because everybody knows that zombies like the dark. So far in this match they've been comparatively puny and manageable, only eating a few of the spectators in between bashing their serves. But come night-fall the world is their oyster. They will play on, play on, right through until dawn. Perhaps they will even leave the court during the change-overs to munch on other people. Has Roger Federer left the grounds? Perhaps they will munch on him, hounding him down as he runs for his car, disembowelling him in the parking lot and leaving Wimbledon without its reigning champion. Maybe they will even eat the trophy too. Growing darker, darker all the while.

8.45pm: A tweet, a tweet from Mr Andy Murray. "This," he says, "is why tennis is one of the toughest sports in the world." Thanks for that Andy: wise words indeed. Actually we were hoping you were tweeting to say when the angel was coming to rescue us all. Instead we get that. You sit comfortably, and eat your nice dinner, and spare us the tweets. Unless they're about the angel, that is. We still have hopes for the angel. And ooh look, it's 57-games all.

8.55pm: Yet again, Mahut wobbles on the brink of defeat. Yet again he steadies himself. One minute Isner has him at 30-30. The next he's through again and we're tied at 58 games apiece. But wait! An official has stepped out on the court. Is it an official, or is it the angel? Is this endless, epic Battle of the Zombies finally going to be brought to a close?

8.59pm: No. It's not. At least not just yet. An exhausted Isner is serving to make it 59-58. An exhausted Mahut runs for a volley and falls flat on his face. An exhausted umpire calls the score in a dreadful, reedy croak. An exhausted Isner takes the game. It's 59-58.

9.10pm: Is it over? It is not over. For a brief moment back then, I thought it was over. Isner clambers to match point on Mahut's serve. Mahut steps forward and saves it with his 95th ace. It's 59-59. Mahut wants to come off now; the light is almost gone. But the official orders the pair to play two more games. "We want more! We want more!" chant the survivors on Court 18. I'm taking this as proof that they have gone insane.

9.12pm: Mahut prevails! Mahut wins! This is not to say he wins the match, of course. Nobody is winning this match; not now and not ever. But he prevails in his complaint and his wish is granted. Play is suspended. They will come back tomorrow and duke it out all over again. The scoreboard will be re-set at 0-0 first set and Isner and Mahut will take it from there. OK, so they won't do that, exactly. Instead, they will pick it up where they left off, at 59-59 in the final set. Apparently the last set of this match has now lasted longer than any match in tennis history. Can this really be true? Nothing would surprise me anymore.

9.25pm: Last thoughts before I ring me a hearse. That was beyond tennis. I think it was even beyond survival, because there is a strong suggestion (soon to be confirmed by doctors) that John Isner actually expired at about the 20-20 mark, and Mahut went soon afterwards, and the remainder of the match was contested by Undead Zombies who ate the spectators during the change of ends (again, this is pending a police investigation). Still, if you're going to watch a pair of zombies go at each other for eleventy-billion hours, far into the night, it might as well be these zombies. They were incredible, astonishing, indefatigable. They fell over frequently but they never stayed down. My hat goes off to these zombies. Possibly my head goes off to them too. It's a crying shame that someone has to lose this match but hey-ho, that's tennis. The historic duel between John Isner and Nicolas Mahut will resume tomorrow and play out to its conclusion. Possibly. Maybe they'll just keep going into Friday and Saturday, Sunday and Monday; belting their aces and waiting for that angel to come and lead them home. As the woman in the stands might say, "Wa-ha-la-wa-ha-la-la-la!" Thanks so much for sticking with me; for your comments and tweets and your emails too. It was very much appreciated. If you're going to liveblog a tennis match in Necropolis, it's reassuring to have someone there to hold your hand. I'm off tomorrow, possibly lying in a ditch somewhere. But the legend that is Paolo Bandino will be here to cover the action. I'm back on Friday, by which time this contest will probably be into quadruple figures in the final set. We'll simply pick it up and take it from there.

Salih Neftci (’77) passed away April 15, 2009 in Aubonne, Switzerland of brain cancer. Salih completed his Ph.D. in 1977, and then taught at Boston College and George Washington University, before arriving at the City University of New York (CUNY) in 1982. In 2005 he accepted a professorship at the New School of Social Research, where he was director of the master of science program in global finance. He was also a director of the FAME (Financial Engineering and Asset Management) Certificate Pro- gram (now the Swiss Finance Institute); a consultant to the IMF, the World Bank, the U.S. Department of State and the Agen- cy for International Development; and a newspaper columnist in Turkey and China. He was the author of: An Introduction to the Mathematics of Financial Derivatives (2000), China’s Financial Markets: An Insider’s Guide to How Markets Work (2006, with Michelle Yuan Menager-Xu), and Principles of Financial Engineering (2nd ed, 2008). A conference is planned by the New School to honor his contributions to the analysis of business cycles and other macro topics...

Fed Stands Pat: The Federal Reserve on Wednesday left its target for the federal funds rate at a range of zero to 0.25% and maintained its pledge to keep rates at this historic low level for an "extended period" to support the recovery. In a statement after their two-day meeting, the Fed downgraded the outlook. They said financial conditions "have become less supportive of economic growth" largely as a result of the European debt crisis.

Paul Einzig, from 1932: It is often argued that Governments are in a position to inflate by carrying out ambitious schemes of public works. Undoubtedly during the earlier stages of the crisis such measures might have produced the desired effect. At present, however, they could hardly be adopted on any large scale. Practically every Government has a huge budgetary deficit, which makes it difficult, if not impossible, to raise loans for meeting the extraordinary expenditure of such public works. Any attempt to borrow for such purposes would inevitably lead to a further accentuation of distrust, which must be avoided at all costs.

Tyler writes:

No matter what your point of view on fiscal policy, you can find that quotation to be scary. That is from this book, p.103, and I thank Michael Reddell for the pointer.

Paul Einzig was wrong. Almunia et al."

http://www.nber.org/papers/w15524.pd: [F]iscal policy made little difference during the 1930s because it was not deployed on the requisite scale, not because it was ineffective.... [T]he first set of VAR exercises suggested that [multipliers] were 2.5 on impact and 1.2 after one year. Where significant fiscal stimulus was provided, output and employment responded accordingly.

Individual country experience with large fiscal stimulus was rare in this period, but where it occurred the evidence points in the same direction. One of the biggest fiscal stimuli in this sample occurred in Mussolini’s Italy during 1936-7, as a result of the war in Ethiopia. Italy ran a deficit in excess of 10 per cent of GDP in 1936 and 1937. Italian GDP grew by 6.8 per cent in 1937, by a marginal amount in 1938, and by 7.3% in 1939. According to Toniolo (1976), the Italian economy moved to full employment during this period. In France, the budget deficit increased substantially beginning in 1935, and GDP grew by 5.8 per cent in 1936. The deficit exploded in 1939, during which year the economy grew by no less than 7.2 per cent.

These examples remind us, of course, that the real Keynesian stimulus, when it came, would be associated with military expenditure during World War II, producing very rapid growth in countries like the United States. In our view, peacetime stimulus packages, which could have halted the rise in unemployment that ultimately led to the election of Adolf Hitler...

Also:

Ian Leslie:

Play it phoney, George: Today, George Osborne set out the most austere budget the country has seen in 30 years. Here’s hoping it was a sham--that the government is misleading the country and the world about the scale of the cuts it is about to implement.... The danger of a violent fiscal tightening has been well-flagged by the Labour party and by economists like David Blanchflower: by cutting too far, too fast, the government risks tipping the country into a second recession, one that will see long-term unemployment rise, causing lasting damage to our social fabric. Maybe, say supporters of austerity, but... [the] key thing is to send a signal to the world about Britain’s determination not to let its debt get out of control.... The optimal strategy for our government... is to manipulate perceptions.... Governments ought to pursue fake austerity programmes; to talk big about slashing costs and shrinking the state while, in reality, only making the most superficial of cuts. This would restore confidence amongst market-makers and consumers that the problem is being dealt with, while saving millions of people from the misery of unemployment. If we’re going to administer medicine, it should be a placebo.

And once again:

The sooner you abandon "orthodox" concern with budget balance and reassuring markets in the hopes of gaining their "confidence," the better.

New-home sales plunge 33% to record low in May Economic Report: Sales of new single-family homes plunged 33% in May to a record-low level after a federal subsidy for home buyers expired, according to data released Wednesday by the Commerce Department. Sales dropped to a seasonally adjusted annual rate of 300,000, the lowest since records began in 1963. April's sales pace was revised down to 446,000 compared with the 504,000 originally reported. March's sales were also revised lower.

The results were much worse than expected, and economists had expected a 20% decline to a seasonally adjusted annual rate of 405,000. See complete economic calendar and consensus forecast.
U.S. stock markets dropped quickly on the news. Gold prices also fell. See full story on the market reaction.

That sales fell was "not at all surprising," wrote Dan Greenhaus, chief economic strategist for Miller Tabak & Co. "However, we would be lying if we said the size of the drop was not shocking"...

Why it is right for central banks to keep printing: Confronted with huge fiscal deficits, many have concluded that they should hurry fiscal tightening on as fast as possible, in the hope that it will prove expansionary. What are the chances that they will be right? Small, I believe.... [A]las, many “sound” people prefer orthodox recessions to unorthodox recoveries.

Why might a sharp structural fiscal tightening promote recovery?... [S]maller prospective deficits may improve confidence among consumers and investors, thereby raising consumption and lowering risk-premia in interest rates.... Is it persuasive? In a word: no. The authors group together data for members of the Organisation for Economic Co-operation and Development between 1970 and 2007. But the impact of fiscal tightening is going to depend on circumstances.

A reduction in the fiscal deficit must be offset by shifts in the private and foreign balances. If fiscal contraction is to be expansionary, net exports must increase and private spending must rise, or private savings [must] fall. Thus, experience of fiscal contraction is going to be very different when it occurs in a few small countries... when the financial sector is in good health... when the private sector is unindebted... when interest rates are high... when external demand is buoyant... and when real exchange rates depreciate sharply....

Yet another approach is to find a situation that is indeed quite like today’s. The closest parallel is the 1930s... [when] fiscal stimulus was effective when tried.... In current circumstances, the belief that a concerted fiscal tightening across the developed world would prove expansionary is, to put it mildly, optimistic. At this stage, I will inevitably be asked: what is the alternative?....

[T]he deleveraging cycle is generating huge private sector financial surpluses.... [T]hese surpluses must now to be invested in government liabilities. This helps explain why yields on the bonds of safer governments remain so low.... [I]f governments need to run deficits, to support demand at a time of private sector weakness, they can always borrow from central banks. Yes, this is “printing money”. It is also an insanely radical policy recommended by no less insane a radical than Milton Friedman, back in 1948.... [O]ne does not have to decide whether fiscal policy or monetary policy is doing the heavy lifting: they are two sides of one coin. The argument for aggressive monetary expansion remains strong... since the growth of broad money and nominal GDP is weak. So Friedman’s policy of “quantitative easing”, as it is called, still makes good sense. Am I recommending the economics of Robert Mugabe? No. As in everything else, it is the context that matters. At present, we have “too little money chasing too many goods”. In this environment, monetary policy must be aggressive....

The conventional wisdom is that a strong and co-ordinated structural fiscal contraction, focused on spending, will promote the growth of a thousand private blooms. I hope this will prove true. But I doubt it...

That fiscal contraction is expansionary when it is part of a package including substantial real exchange rate depreciation and substantail interest rate reductions by the central banks is something I have believed ever since I first started thinking about these issues. I was printing up color graphs to support that argument back in December 1992 so that Summers, Reich, Blinder, and Altman could make that argument to President-Elect Clinton.

But the world's exchange rate cannot depreciate against itself right now. North Atlantic ce ntral banks (Britain's aside) have no room to reduce the interest rates they control. The only argument left is that fiscal contraction will shrink risk premia and boost private-sector confidence--but no fiscal contraction now will solve the long-term financing problems of the North Atlantic social insurance states. If the alternative to stimulative fiscal policy accompanied by Friedmanite quantitative easing now were a policy that moved the North Atlantic governments into Auerbach-Kotlikoff intergenerational balance, I would say that they might have an argument.

But it isn't.

A Keynesian economist would say that demand is way low--and that the government needs to boost it. A monetarist economist would say that spending is way low--and so the government can either boost velocity by boosting the opportunity cost of holding money (which is most easily done by printing more government bonds--running bigger deficits) or boost the money stock by printing money. A market-oriented economist would say that U.S. Treasury (and German government, and Japanese government bonds) right now are extraordinarily valuable assets--and thus that the way to maximize economic value is to print more of them, i.e. run bigger government deficits.

The only response I hear is that the market lacks confidence. But the market doesn't lack confidence in the government. THe market lacks confidence in the private sector--it lacks confidence that unemployment will be low and capacity utilization high enough for private businesses to make the operating profits needed to service their debt, and that the financial system is well-enough capitalized that those operating profits will flow through to newly-issued financial instruments rather than being diverted to cover unrecognized but very real past losses. I could understand: "we need to shrink risk premia by having the government guarantee new bond issues." I cannot understand: "we need to shrink risk premia by raising taxes and cutting spending for the fiscal year that starts in July."

I could understand losing the argument if consumer price inflation was rising, if expectations of inflation in the Treasury-TIPS spreads were rising, if real interest rates on long U.S. Treasury bonds were rising, if there were any signs at all that we were moving from the green zone to the yellow zone as far as the U.S. Treasury bond's status as safe asset in the world economy were concerned. But we are not doing that. As Alan Greenspan just wrote:

An urgency to rein in budget deficits seems to be gaining some traction among American lawmakers. If so, it is none too soon. Perceptions of a large U.S. borrowing capacity are misleading. Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable...

That the U.S.--in spite of the Reagan deficits, in spite of the Bush 41 deficits, in spite of the Bush 43 deficits--still has room to borrow to deal with national emergencies likes wars and depressions is not regrettable. It is gratifying.

The hope is that this is all just Dingbut Kabuki: that the U.S. government will continue the ARRA rather than letting it die off and expire, and will find some way to compensate for the next round of state and local fiscal contraction, and that the Europeans will talk a lot but do nothing to send their economies deeper into recession. But I fear that it is not.

Somehow we seem to have lost the argument--within the ECB, within the French and the European governments, within the British Liberal Party, within the Bank of England, within the Federal Reserve, with U.S. Senator number 60, and even within the White House.

The Spanish Foreign Minister requests advice with regard to the treatment of [the former King of the United Kingdom] the Duke and Duchess of Windsor who were to arrive in Madrid today, apparently en route [from France, where he had been part of the British military mission to the French Army High Command] to England by way of Lisbon. The Foreign Minister assumes that we might perhaps be interested in detaining the Duke here and possibly establishing contact with him. Please telegraph instructions.

Centrist and clueless: Liberal Democrats know what they're for: a second stimulus to create more investment and jobs.... Republicans... know what they're against: anything the Democrats are for. That leaves the centrist Blue Dog Democrats, who don't really know what they're for or what they're against. Earlier this year... Blue Dogs... were saying they would welcome an end to the debate over health-care reform so they could turn their attention to jobs, jobs, jobs. But now that President Obama and Democratic legislative leaders have done that, the Blue Dogs have largely turned skittish. Efforts by the leaders in both houses to pass bills that would save the jobs of teachers and police officers, maintain states' ability to make Medicaid payments and extend unemployment insurance have hit not only the expected bumps in the road (unified Republican opposition) but also fresh potholes: Blue Dog resistance to countercyclical spending....

The downside of not passing any further stimulus legislation is clear.... In today's economy, alas, the government remains the only source of significant investment.... [N]onfinancial companies are hoarding cash -- a record-high $1.84 trillion... they are not using it to expand....

Until recently, virtually every Democratic member of Congress could be counted on to support some level of countercyclical spending. That was one of the basic ways Democrats distinguished themselves from the laissez-faire right.... The problem here is that the Blue Dogs, like much of the public, conflate the issues of the nation's long-term fiscal sustainability with the short-term deficits created by the worst downturn since the '30s. Thus the Democratic imperative of creating jobs in 2009 became, earlier this year, one of creating jobs and reducing the deficit, and now, for some Blue Dogs, has become chiefly one of reducing the deficit. In polls, meanwhile, the public rates "jobs" as its chief concern, with the deficit lagging far behind....

[T]he Blue Dogs' short-term deficit hawkery is more than bad economics. It's bad politics, too. Even pragmatic centrists -- especially pragmatic centrists -- have to be in favor of something. The Blue Dogs don't seem to know what exactly that might be.

As Duncan Black says:

Eschaton: The silver lining of Congress's failure to do anything about mass unemployment is that a lot of s----- politicians will lose their jobs. That they fail to understand this is a bit weird, and inevitably when it happens they'll fail to understand why. But at least we won't have them to kick around anymore.

What he doesn't say--what he doesn't seem to recognize--is that the Republicans who will replace the Blue Dogs in swing districts will be much, much, much worse.

AS: "We face an unusually high unemployment rate of 9.7 percent and ridiculously low interest rates, even out to 30 years. Cheap credit and idle resources present a great opportunity to borrow and spend, particularly for things we know we need. I have long been a fan of countercyclical government investment. In January 2008, I proposed a better way to deal with downturns and a budget that plans for the future as a means of substantially increasing our infrastructure investment at the most opportune times in the business cycle.... [T]he sorts of policies being discussed -- like the patchwork of relief programs that died in the Senate last week -- are the same old stuff. It is a sign of how poorly our system of governance works that we cannot even plan for something that we have been enduring for two and a half years."

The Caution of the Fed Comes With a Risk: Ben Bernanke believes that he and his Federal Reserve colleagues have the ability to lift economic growth.... Mr. Bernanke also believes that the economy is growing “not fast enough”... that unemployment will remain high for years and that “a lot of people are going to be under financial stress.” Yet he has been unwilling to use his power to lift growth and reduce joblessness.... How can this be? How can Mr. Bernanke simultaneously think that growth is too slow and that it shouldn’t be sped up? There is an answer — whether or not you find it persuasive.

Above all, top Fed officials are worried that financial markets are fragile. They are not so much worried about inflation, the traditional source of Fed angst, as they are about upsetting the markets’ confidence in Washington. Yes, investors remain happy to lend the United States money at rock-bottom interest rates, despite our budget deficit and all of the emergency Fed programs that will eventually need to be unwound. But no one knows how long that confidence will last. In effect, Mr. Bernanke and his colleagues have decided to accept an all-but-certain downside — high unemployment, for years to come — rather than risk an even worse situation — a market panic, a spike in long-term interest rates and yet higher unemployment. As the last few years have shown, market sentiment can change unexpectedly and sharply.

Still, you have to wonder if the Fed is paying enough attention to the risks of its own approach. They do exist. The recent data on jobless claims, consumer spending and home sales have been weak. On Tuesday, Britain announced a budget-cutting plan that will depress short-term growth there and spill over somewhat into the global economy. The necessary budget cuts in Greece and other parts of Europe won’t help global growth, either...

But nobody out there in the private markets is betting on such a scenario. The Treasury real yield curve is at 1.2% for ten years. The Treasury nominal yield curve is at 3.2% for ten years. If anybody out there in the private market thought that such a panic was possible, or even likely, its possibility would be priced into the Treasury yield curve right now.

At the start of December 2008 credit default swaps on Greece were at 250 basis points, on Ireland 220, on Portugal 170, on Spain 130, on Italy 100--the marginal investor in the market was betting that there was one chance in 100 that Italy would experience a credit default event, and 2.5 chances in 100 that Greece would experience such an event. The market in December 2008 did not expect that a Greek crisis was more likely than not. But it thought that there was some noticeable, non-zero possibility. Panic did not spring full-grown from nowhere: panic came out of market belief that fundamentals were weak, the willingness of some investors to place big bets that that weakness was worth betting on, and the unwillingness of other investors to place big bets that everything would be fine:

Now the United States is at 40: way down from the 100 it was at at the start of March 2009:

And the U.S., unlike Portugal or Greece or Spain or Ireland or Italy, prints up the paper that it has to pay its bonds off in.

I agree that Greece has no business engaging in fiscal stimulus right now. But the U.S.? For a market panic to take place investors have to panic. And for them to panic, they must first think that there is a chance that there might be a panic. When CDS prices in the U.S. rise to indicate that there are some investors in the U.S. who think it is worthy buying insurance by betting that there might be a panic, then I can undersand Bernanke's caution.

Do the news media spend too much time on news?: There's a problem in the way the media cover substance. At the beginning of the debate, there's a fair amount of attention paid to the basics of the legislation. But... the argument moves on to smaller pieces... that are controversial. The media cover those points of controversy... people tune in, but they missed the beginning, and now everyone is talking about the bill's third CBO score, not about how the thing actually works.... There are plenty of outlets that tell you what happened yesterday, but virtually no organizations that simply tell you what's going on. Keeping up on the news is easy, but getting a handle on an ongoing situation that you've not really been following is hard....

The fact that I still can't direct people to one really good, really clear, really comprehensive online summary of the [health care] bill is an enduring frustration for me, and a real problem....

If I edited a major publication -- or even a medium-size one -- I would begin each major legislative battle by detailing a few of my smartest, clearest writers to create a hyperlinked, fairly comprehensive, summary of the basic legislation. That summary would be updated throughout the process, and it would be linked in every single story written on the topic. As reader questions came in, and points of confusion arose, it would be expanded, so by the end, you'd have a document that was current, comprehensive, navigable and responsive to the questions people actually had about the legislation. Telling people what just happened is undeniably important, but given that most people aren't following that closely, we in the media need to do a better job of telling people what's been happening.

Under WC, firms and industries were able to accomplish a comparable rate of productivity growth, but they did so by shedding (rather than hiring) labor. The displaced labor went not to higher-productivity activities, but to less productive lines of work such as informality and various services. In other words, the WC ended up promoting the wrong kind of structural change.

This account reinforces the centrality of structural change in driving rapid economic growth. It should also cause us to be wary of productivity studies that focus on what is happening within manufacturing alone. After all, productivity within manufacturing can be stellar, but if manufacturing or other high productivity sectors as a whole are rapidly shedding labor, economy-wide productivity performance will be disappointing.